Carterville Bankruptcy Lawyer: 523(a)(16) Conundrum – Strategies to minimize clients’ exposure for post-petition homeowners association (“HOA”) dues

In recent months, many chapter 7 debtors and their attorneys have struggled with the harsh consequences of newly-enacted 11 U.S.C.  523(a)(16), which excepts from a debtor’s discharge, any post-petition “fee of assessment that becomes due and payable” to a homeowners association (“HOA”), as long as the debtor maintains a “legal, equitable, or possessory ownership interest” in the subject property.

With the unprecedented volume of foreclosures associated with the nationwide mortgage crisis, mortgage lenders frequently take months, or even years, to finalize foreclosure sales.  Since the debtor technically maintains a legal or equitable ownership interest in the property (even in the absence of a possessory interest), the debtor could remain liable for HOA assessments accruing for many months, or even years after leaving the property while the lender finalizes the foreclosure process.

Such liability, through no fault of the debtor, frustrates the debtor’s good-faith effort to secure a fresh financial start.  Until the Bankruptcy Code is corrected to address this glaring injustice, debtors and their attorneys must be proactive to mitigate the harsh consequences.  What are the options?

One option is to simply wait until after the foreclosure is concluded before filing the chapter 7 bankruptcy.  In practice, however, waiting months or years to file chapter 7 is simply not feasible.

Perhaps the best option (being used by my office and many of my peers) is for the debtor to vacate the property upon filing, and at the same time, execute and record a deed transferring ownership back to the mortgage lender, or even the HOA.  Although this option is not perfect, it is – in my opinion – the best way to protect chapter 7 debtors from the harsh (perhaps unintended) consequences of § 523(a)(16).

Brian Cahn, senior partner with Perrotta, Cahn and Prieto, P.C.

Perrotta, Cahn & Prieto represents clients throughout Georgia and the Southeastern United States.  We have offices conveniently located throughout Georgia.  To schedule a free consultation with a lawyer at our firm, call us toll-free at 866-382-8900 or visit us online at

We have offices in: Cartersville, Calhoun, Dalton, Atlanta and Dallas

Serving clients in: Bartow, Floyd, Paulding, Cherokee, Polk, Whitfield, Douglas, Cobb, Fulton, Chatham, and all of Northwest Georgia.


Posted on August 1, 2012, in Bankruptcy and tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. 1 Comment.

  1. It’s nearly impossible to find well-informed people about this subject, but you seem like you know what
    you’re talking about! Thanks

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